Main contract adjudication provisions not incorporated into sub-contract

Edwards-Stuart J has recently held that main contract adjudication provisions were not incorporated into a sub-contract. As a result, the appointed adjudicator had jurisdiction to deal with the dispute over the non-payment of Inviron’s application for £643,283.

Imtech Inviron v Loppingdale Plant

Loppingdale was appointed under a framework agreement to carry out various infrastructure works at Stansted Airport. It sub-contracted certain M&E works to Inviron.
A dispute arose as to payment under an interim application, which was referred to adjudication. Inviron obtained a decision in its favour from an adjudicator appointed by TECBAR, Mr Ben Sareen, for more than £600,000. Loppingdale refused to pay, contending that the adjudicator had not been properly appointed.

The arguments

Loppingdale argued that the framework agreement’s adjudication provisions had been incorporated into the sub-contract. These provisions stipulated that the adjudicator be one of three named individuals (not including Mr Sareen) or, in default, appointment by the ICE.

Clauses 1.1 and 1.3 of the sub-contract provided as follows:

1.1 These Terms and Conditions together with the Framework Agreement attached to these Terms and Conditions (‘the Framework Agreement’) together with the Purchase Order to be issued by LPL to the contractor for each sub-contract and the Task Order to be issued to LPL and a copy provided to the Subcontractor for each subcontract (‘the Task Order’) set out all the rights and obligations of the parties each to the other and no other terms or conditions shall be implied saved the extent that such terms and conditions are implied by statute save as may be agreed by the parties in writing.

1.3 The subcontract Works are executed as part of work to be carried out by LPL for its Customer under the Principal Contract as set out in the Framework Agreement and the Task Order (together ‘the Principal Contract’). The Subcontractor shall be deemed to have read the Principal Contract and to be fully aware of the obligations, risks and liabilities assumed by LPL under them. The Subcontractor shall perform and assume, as part of its obligations under this contract, LPL’s obligations, liabilities and risks contained within the Principal Contract that relate to the carrying out of the Task Order and/or Purchase Order as if they were expressly referred to in the subcontract as obligations, liabilities and risks of the subcontractor, all things being equal …

Inviron argued that, on the proper construction of the sub-contract, it was only the primary obligations of the framework agreement (that is, those relating to the work to be carried out and how it was to be done) that were incorporated, not the secondary obligations (such as those relating to insurance and indemnities). Adjudication provisions were secondary (or even tertiary) obligations as they governed the way in which disputes about substantive rights and obligations were to be resolved.

Inviron also relied on:

Clause 1.23, which made specific provision for compliance with certain secondary obligations (liability, insurance and indemnities in respect of death or injury to persons and loss or damage to property), which would not have been necessary if these obligations were already covered.

Clause 1.25, which provided a different choice of jurisdiction from that in the framework agreement and thus indicated an intention not to incorporate such non-primary matters.

Inviron referred to the law on the incorporation of arbitration clauses, in particular the decision in Habas Sinai v Sometal SAL, in which Christopher Clarke J (as he then was) reviewed the extensive case law in this area and reached the following conclusions:

“48. Whenever some terms other than those set out in the incorporating document are said to be incorporated it is necessary to be clear what those terms are. Since arbitration clauses are not terms which regulate the parties’ substantive rights and obligations under the contract but are terms dealing with the resolution of disputes relating to those rights and obligations it is also necessary to be clear that the parties did intend to incorporate such a clause…

49. There is a particular need to be clear that the parties intended to incorporate the arbitration clause when the incorporation relied on is the incorporation of the terms of a contract made between different parties, even if one of them is a party to the contract in suit. In such a case it may not be evident that the parties intended not only to incorporate the substantive provisions of the other contract but also provisions as to the resolution of disputes between different parties, particularly if a degree of verbal manipulation is needed for the incorporated arbitration clause to work.”

Here, a degree of verbal manipulation was required, because the framework agreement’s adjudication provisions applied to the “Parties” which were defined as Loppingdale and its employer, Stansted.

“In relation to the adjudication clause in particular, I consider that it is far from evident that the parties intended this to be incorporated into the [sub-contract]. In my judgment it is certainly not clear that this was intended and accordingly I conclude that the provisions of the Scheme are to be incorporated into the sub-contract or sub-contracts made between LPL and Inviron.”

It is also worth noting that Loppingdale’s contention that there should be a full trial of the incorporation issue was rejected as this was a point of construction of the type that the court could and should determine on an application for summary judgment (as indicated by the Court of Appeal in Khatri v Co-operatieve Centrale Raiffeisen-Boerenleenbank BA).

On this point, Edwards-Stuart J said:

“Whilst I consider that the court must always exercise great care when approaching the summary disposal of a claim, particularly having regard to the warning given by the Court of Appeal in Royal Brompton Hospital NHS Trust v Hammond (No. 5) [2001] EWCA Civ 550, I think that Mr. Winser is right to submit that it is hard to see what sort of evidence might emerge which could assist the court on what is, essentially, a straightforward matter of construction of the documents.”

Conclusion

This case is a useful reminder that in order to incorporate adjudication provisions from a main contact (between A and B) into a sub-contract (between B and C), a clear intention to do so is required. If there is no express reference to the adjudication provisions in the sub-contract, it will be difficult (if not impossible) to establish such an intention.

The position is different where the adjudication provisions are contained in a previous contract between the same parties, or in a standard form. In those circumstances, the court will more readily find the necessary intention, even in the absence of express reference.